Articles and Publications

Nov 07, 2019

Ten considerations for landlords before leasing to marijuana retailers

As communities throughout Illinois decide to opt in to the new Illinois law allowing the retail sale of recreational marijuana, landlords will be faced with numerous practical and legal considerations when contemplating whether or not to lease to such a business. These considerations include the following: 

1. Financing
If the landlord’s property is secured, and considering that the sale of marijuana is still illegal on a federal level, will allowing the retail sale of marijuana violate loan covenants shown under the landlord’s loan documents?

2. Insurance 
Given that the sale of marijuana is still illegal on a federal level, will allowing such sales be covered by, or possibly even negate, existing insurance coverage?

3. License contingency
Marijuana retailers are highly regulated and licensing is a laborious process. When signing a lease that requires a contingency on licensing approval, the landlord should be prepared for such approvals to be very involved and will take considerable time for the tenant to achieve. 

4. Local zoning 
If the lease has a contingency on zoning approval, will the tenant need local approvals that require public hearings? Legal or not, the sale of marijuana is still very controversial in some communities and the outcome of a public hearing may be a considerable unknown. 

5. Banking complications 
Because of federal prohibitions, marijuana retailers deal only in cash. If the marijuana retailer intends to pay rent in cash, is the landlord prepared to accept such cash rent payments? How will the landlord’s bank consider such deposits?

6. State regulation 
Marijuana retailers are highly regulated. Will routine landlord rights such as inspections and/or access to the lease premises be sacrificed when leasing to these regulated operators?

7. Be wary of percentage rent leases 
Does a “percentage rent” form of lease structure trigger a risk that signifies the landlord is now effectively a partner in a business that is still illegal under federal law?

8. Tenant’s buildout 
As marijuana retailers are required to have increased security and meet numerous regulatory burdens relative to access and layout, how involved will the tenant’s buildout be and how long will such a buildout take to complete?  

9. Assignment 
Could the landlord be expected to cooperate with an assignment of the lease to another marijuana retailer with whom the landlord may not be as comfortable with under a typical assignment provision?

10. Politics with neighbors and other tenants
The sale of marijuana is still highly controversial within some communities. Will allowing such a store to open subject a landlord to disruption amongst its other tenants and/or cause business disruption due to upset neighboring property owners?
Before leasing to a marijuana retailer, contact a Real Estate attorney to ensure the proper licensure has been attained, the zoning is acceptable and leasing and loan documents scrutinize all of the potential issues surrounding this type of tenant.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by Kevin M. Coyne, Principal